AquaBounty Technologies, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. AquaBounty develops and sells land-raised Atlantic salmon, including genetically engineered AquAdvantage salmon. Commercial sales began in 2021; the company operates farms in Indiana and Prince Edward Island and is developing a larger Ohio farm.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $963,000 | $74,000 |
| Product costs | $3.276 million | $1.555 million |
| Operating loss | $5.104 million | $4.085 million |
| Net loss | $5.112 million | $4.159 million |
| Net loss per share | $0.07 | $0.06 |
| Cash used in operating activities | $5.326 million | $4.518 million |
| Cash used in investing activities | $7.468 million | $1.219 million |
Revenue was mostly from GE Atlantic salmon ($921,000); the remainder was primarily conventional salmon fry. GE salmon sales were $789,000 in the U.S. and $132,000 in Canada. Product costs exceeded revenue by approximately $2.313 million, an implied product gross margin of approximately negative 240%. The filing reports a $2.1 million inventory value charge, compared with $1.5 million in Q1 2021, because production costs exceeded the estimated net realizable value of salmon produced.
At March 31, cash and cash equivalents were $75.5 million, marketable securities $103.4 million, and restricted cash $1.0 million—$179.9 million combined. Total debt was $9.14 million, including $5.7 million of interest-bearing debt. Total liabilities were $12.8 million; stockholders’ equity was $208.9 million. The company reported $37.8 million of net property, plant and equipment, including $12.3 million of construction in progress.
Changes and business developments
- Revenue increased substantially year over year following the start of GE salmon sales in June 2021. Management expects revenue to grow modestly in 2022 as harvesting capacity increases at Indiana and Rollo Bay.
- Product costs rose 111% year over year, reflecting increased production, staffing, feed, supplies, processing, and transportation. General and administrative expense increased 33%; research and development expense declined 67%, and sales and marketing expense declined 22%.
- Operating loss increased 25% and net loss increased 23% year over year. Operating cash use also increased. Capital spending and equipment purchases drove investing cash use to $5.8 million, versus $1.2 million a year earlier.
- Cash and cash equivalents declined by $12.9 million during the quarter. The prior-year quarter included approximately $119.1 million of net proceeds from an equity offering, unlike Q1 2022.
- Construction costs in progress included $9.4 million related to the Ohio farm. The company had an additional $19.4 million contractually committed to farm sites, with some amount potentially refundable upon termination depending on completed work.
Outlook, risks and notable items
- Management expects approximately $104 million of cash use during the remainder of 2022 for operations and Ohio farm construction. It estimates Ohio construction costs at $290 million–$320 million, including a $30 million contingency reserve, and expects to fund the project with cash on hand and future debt issuances.
- Management believes available liquidity is sufficient for at least 12 months from the filing date, but states that additional financing may be needed before the company reaches positive operating cash flow. Financing may dilute shareholders or impose restrictive terms; failure to obtain funding could force reduced or discontinued operations.
- The Indiana subsidiary was out of compliance with one First Farmers Bank & Trust covenant at March 31. The lender revised the covenant after quarter-end, and the subsidiary returned to compliance. Future compliance depends on operating performance.
- Management cites COVID-related and other supply-chain, labor, equipment lead-time, construction-delay, and cost-increase risks that could affect farm capacity and project schedules. Other risks include regulatory approvals in new markets, market acceptance, production yields and costs, and the ability to scale profitably.
- The company reported no legal proceeding expected to have a material adverse effect and no material change to previously disclosed commitments and contingencies. Management stated disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether harvesting volumes, realized selling prices, and customer demand support the projected modest 2022 revenue growth; three customers accounted for 69% of Q1 revenue.
- Whether production costs and inventory valuation charges decline as operations scale, and how much saleable output existing farms can achieve.
- Updated Ohio farm cost, schedule, committed spending, and financing plans relative to the $290 million–$320 million estimate and expected $104 million remainder-of-year cash use.
- Liquidity runway and access to financing under continued operating cash losses, including the implications of potential equity dilution or new debt covenants.
- Indiana subsidiary covenant compliance and any further lender amendments, as well as the operational effects of labor, supply-chain, and construction constraints.